Q6.

Financial statements are source of external reporting. It provides information for public, creditors,
shareholders. Financial statement conveys information of performance, position, profitability.
Balance sheet is source of conveying information of financial position of company. How much
resources company must operate its business and how much sources it needs to further exploit
growth opportunities? Income statement is all about profitability of business in terms of daily
routine operation how much company is earning from its daily operation, how much income is
generated by its own source of business, it will tell financial performance of company. Cash flow
statement tells us that company is good position whether it has high cash or low it means it tells us
about liquidity and solvency of company.

Importance of financial statements

Importance to management

Management make policies on the basis of evaluation through financial statements numerical data
at what position company is standing, financial statements help company to evaluate its growth
from historical data also compare to its peer industry.

Importance to shareholder

Financial information is great source for prospective investors, it enables them to use these sources
and decide about future investments as management and ownership are different aspects
shareholder only attend annual meetings and decide about company by looking into financial
statements.

Importance for creditors

Creditors have first claim on earnings therefore they always want financial statement to see that
whether company is at position to oblige their payments how much they have already debt amount
and generate cash to fulfill their obligations.

Importance for public

Business enterprise re social entity and its reputation is in the hand of public there are financial
analyst, lawyers, financial press trade unions want to know enterprise performance so, they can
judge and make decision on basis of financial statements.

Importance for economy

Growth in corporate sector ultimately growth in GDP and it will cause growth in whole economy. So,
public will try to get information from financial statements and judge about real worth of company
and avoid being cheated by culprit persons.

Specially, for public listed companies, to check whether are paying taxes, follow regulation and
policies , follow accounting standard financial statements are source to achieve it.